Why balance is the real key to long-term financial stability
Credit is not the monster. Ignorance is. And it doesn’t matter what you buy; if you don’t have a balanced approach, you’re going to be off-kilter.
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One thing that confuses people about money is the number of mixed messages they receive.
On one side are companies that throw credit at you, offering cards with the latest bells and whistles, points to fly, free travel insurance, cash back. They promise you that you can have everything you want right now for just a small minimum monthly payment.
On the other side are experts who shout that debt is evil and that it’s stupid to pay interest.
Who would you rather believe? The guy who tells you it’s okay to go shopping, or the guy who calls you a moron for spending money you haven’t yet earned?
Then there are the mixed messages about saving for retirement: On side A are Jacks who say that if you aren’t making the maximum contribution to your RRSP every year, cat food will be too good for you.
On the flip side are the Jackies who claim that you shouldn’t even put money in a retirement plan because RRSPs are a tax trap.
Who would you rather believe? The body that tells you to go ahead and spend all your money because saving is a waste or the body that tells you to stop stealing from your future self? Hmm.
Then there’s the life insurance industry. On one side sit the boys in the T-shirts that say, “Term insurance is the best.” The lads on the other side are wearing T-shirts with the slogan, “Permanent insurance is the best.” So which is it? Is it any wonder that people are confused?
While people typically associate me with debt, I don’t believe that credit is the monster. Ignorance is. And it doesn’t matter if you’re buying a house, buying insurance, or buying an investment, if you don’t have a balanced approach to your financial life, you’re going to be off-kilter.
Doing anything whole hog and to the detriment of the other parts of your financial life is not only shortsighted, it’s dumb.
Debt repayment is important, but so is having some money set aside for emergencies and to grow for the future. After all, if you’re debt-free with no emergency fund, it’ll only take a tiny slip to push you into the red.
The only way to find balance is to be able to hold more than one thought in your head at the same time . . . actually four thoughts, that’s all:
1. Don’t spend more money than you make. So no credit card or line of credit balances, and no overdraft.
2. Save something. How much depends on how old you are and how much you’ve already saved.
3. Get your debt paid off — consumer debt first.
4. Mitigate your risks with an emergency fund and enough of the right kind of insurance
Stop listening to the cacophony of shouts trying to sway you to one side or the other in a debate. Think for yourself. If there are holes in your knowledge, learn. Then think.
It’s how you choose to use your money that will keep you balanced financially.
It comes down to math: The first step is to add your net incomes together. Then divide each individual income by this figure and multiply by 100.
So many people see the math of money as overwhelming. It isn’t. It’s Grade 5 math. Stop using this excuse!